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NISM Certifications · NISM-Series-VII: Securities Operations and Risk Management · Market Participants in the Securities Market

Which statement about a clearing corporation, such as NSE Clearing Limited, as a market participant is correct?

A clearing corporation becomes the counterparty to every trade through novation and guarantees settlement. It does not set prices, which come from the exchange order book, hold demat balances, which depositories do, or register brokers, which SEBI does.

  1. AIt acts as the counterparty to every trade through novation, guaranteeing settlementCorrect
  2. BIt sets the price at which securities trade on the exchange
  3. CIt maintains investors' demat holdings
  4. DIt registers stock brokers with SEBI

Explanation

Through novation, the clearing corporation becomes the buyer to every seller and the seller to every buyer, which provides settlement guarantee. Price discovery occurs on the exchange order book. Demat holdings are kept by depositories and SEBI registers brokers.

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